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Pani-rosa [81]
3 years ago
8

Consider the following information for three stocks, Stock A, Stock B, and Stock C. The returns on each of the three stocks are

positively correlated, but they are not perfectly correlated. (That is, all of the correlation coefficients are between 0 and 1.)
Stock - Expected Return - Standard Deviation - Beta
Stock A - 10% - 20% - 1.0
Stock B - 10 - 20 - 1.0
Stock C - 12 - 20 - 1.4
Portfolio P has half of its funds invested in Stock A and half invested in Stock B. Portfolio Q has one third of its funds invested in each of the three stocks. The risk-free rate is 5%, and the market is in equilibrium.
What is the market risk premium RPM?
a. 4.5%
b. 5.0%
c. 6.0%
d. 5.5%
e. 4.0%
Business
1 answer:
hichkok12 [17]3 years ago
4 0

Answer:

b. 5.0%

Explanation:

For this question, we use the Capital Asset Pricing model (CAPM) formula that is shown below:

Expected rate of return = Risk-free rate of return + Beta × (Market rate of return - Risk-free rate of return)

where,

The Market rate of return - Risk-free rate of return) is also known as the market risk premium

So, for stock A, the market risk premium is

10% = 5% + 1.0 × market risk premium

10 - 5% = 1.0  × market risk premium

5% ÷ 1.0 = market risk premium

So, the market risk premium is 5.0%

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Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $70,000 or $200,000 with equal p
xenn [34]

Answer:

A) 964,286

B) 14

C) 750,000

Explanation:

The portfolios expected return = (0.5 x $70,000) + (0.5 x $200,000) = $35,000 + $100,000 = $135,000

If the risk free investment yields 6% per year, and you require a risk premium of 8%, then the total interest rate that the portfolio yields must be 6% + 8% = 14%

you will be willing to pay: $135,000 / 14% = $964,286 for the portfolio

if the risk premium increase by 4%, then the price of the portfolio will decrease to: $135,000 / 18% = $750,000

4 0
3 years ago
When the demand curve for a good is unit elastic, raising the price of the good by 25 percent will change the revenue of the fir
san4es73 [151]

Answer: 0%

Explanation:

Elasticity measures the change in demand resulting from a change in price. The law of demand holds that when prices increase, quantity demand would decrease and elasticity is meant to show the magnitude of this change.

A unit elastic good means that prices and quantity demanded change by the same amount. This means that for a unit elastic good, if the price change is a 5% increase, the quantity demanded will decrease by 5%.

In terms of revenue, if the price increases by the same amount that quantity demanded decreases, the effects will cancel out so there will be no revenue effect.

4 0
3 years ago
MasterCard managers are motivated to increase (1) the number of individuals who have and use a MasterCard credit card, (2) the n
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MasterCard could use the data warehousing strategy by making its cards acceptable for any transaction in any place.

Data warehouse plays an important role in the competitive market for MasterCard. As the data has been turned into Business Intelligence (BI), which enables individuals, banks and companies to make strong decisions with regard to payment through electronic means.

The data warehousing could be used by MasterCard to gain a distinct advantage over its competitors. As previously Visa represents around 50% of charges for products sold overall while MasterCard was only at 25%.

An example of using Data warehousing is such that banks can issue MasterCard which if used on Aircraft or Restaurants then these banks can use this data to arrange offers and other benefits to motivate cardholders to spend more with their MasterCard. They could even offer limited time openings such as to pay for room or buy exclusive items during shopping.

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2 years ago
Marla, the new accountant, impressed the interview committee because she graduated at the top of her class. the department super
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This is the Halo Effect
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3 years ago
Vanessa bought a house for $268,500. She has a 30 year mortgage with a fixed rate of 6.25%. Vanessaâs monthly payments are $1,59
Musya8 [376]

Answer:

Ans. A) $9,314.45

Explanation:

Hi, first we have to bring to present value the monthly payments to be made for 30 years (360 months). In order for this to be useful, we have to convert this annua compounded monthly rate (6.25%) to an effective rate, that is 6.25% / 12 = 0.5208%. Now, when we find this present value, we are going to substract it from the price of the house and that is the value of the down payment. But let´s just go ahead and do it together.

We have to use this formula to bring to present value the $1,595.85 monthly payments, for 30 years (360 months) at a rate of 6.25% (0.5208% monthly).

PresentValue=\frac{A((1+r)^{n}-1) }{r(1+r)^{n} }

It should look like this

PresentValue=\frac{1,595.85((1+ 0.005208 )^{360}-1) }{0.005208(1+0.005208)^{360} }

Present Value=259,185.55

Now, let´s go ahead and find the down payment.

DownPayment=Price-PresentValue

DownPayment=268,500-259,185.55= 9,314.45

So, the answer is a). $9,314.45

Best of luck.

5 0
3 years ago
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